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The Return on Private Capital: Rising and Diverging

Author

Listed:
  • Robert S. Chirinko

    (Professor, Department of Finance, University of Illinois at Chicago (E-mail: chirinko@uic.edu))

  • Debdulal Mallick

    (Associate Professor, Department of Economics, Deakin University (E-mail: dmallic@deakin.edu.au))

Abstract

We study the return on private capital across 88 countries for 1970-2014. The return on private capital has exhibited two phases, approximately constant from 1970-1990, but then rising dramatically from 1991-2014. This latter increase occurs for both Rich/Developed and Poor/ Developing countries, though at an uneven pace; the Lucas Paradox seems to have become more pronounced in recent years. Despite falling real interest rates lowering the returns on private capital, 60% of the secular rise in the returns in poor countries is explained by rising equity risk, depreciation, and markups and by the capital loss from expected decreases in the relative price of new capital. These same factors explain 163% of the secular rise in the returns of private capital in rich countries (i.e., the factors rise more than the returns). Policy implications are discussed.

Suggested Citation

  • Robert S. Chirinko & Debdulal Mallick, 2022. "The Return on Private Capital: Rising and Diverging," IMES Discussion Paper Series 22-E-02, Institute for Monetary and Economic Studies, Bank of Japan.
    • Handle: RePEc:ime:imedps:22-e-02
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    File URL: https://www.imes.boj.or.jp/research/papers/english/22-E-02.pdf
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    References listed on IDEAS

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    Cited by:

    1. Mallick, Debdulal & Maqsood, Nabeel, 2022. "Capital-labor substitution and misallocation," MPRA Paper 115090, University Library of Munich, Germany.

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    More about this item

    Keywords

    Return on private capital; International capital allocations;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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